2016-03-28

Why Is Zhou Xiaochuan Always Misunderstood?

The answer, as has been the case for the past three years or so, is investors are constantly looking for stimulus. Take the most recent talk of using equity markets to ease the debt burden. This is a reform agenda for the government, to have financial markets play a greater role in capital allocation. Investors who see stimulus everywhere they look, interpret PBoC statements through the lens of a stimulus effort, instead of the same reform path that's been followed (ever so slowly) for the past few years.

High proportion of lending is actually trying to resolve a 20-year proposition. In China, bank credit-based indirect financing accounted for about 80%, only 20% of direct financing, but the opposite is true in the United States and other developed market economies. In terms of avoiding risk concentration in the banking system, or optimizing asset allocation point of view of the structure of residents, improve the proportion of direct financing is a very critical thing. China has more than 60 trillion of savings, which provide equity financing to a large pool of money, and gradually establish and improve multi-level are capital markets, more equity financing to provide more space. "Equity financing through the capital market can make a greater proportion of national savings in equity funds for financing" can be said it is an inevitable trend.

But the trend does not equal reality. As Zhou said, China's capital market development relatively late, the stock market began to appear in the early 1990s, market development time is shorter, private equity financing is relatively weak. Due to lack of private accumulation of wealth and opportunity into equity is also relatively small. Moreover, in the past many years, the turnaround for the index ups and downs, the stock market is a lot of time various complex target interference, not playing solid foundation market. Destructive Enthusiasm, knowing the consequences do not ask. Liu Yu as the new Chairman of the SFC said, how blowing up the bubble, how it will burst.

The current stock market is in a stage of recuperation. After experiencing abnormal fluctuations last year, regardless of the market or a regulator, the stock market needs to get to the root of the change. During the two sessions this year, Liu Shiyu said the Chairman of the Commission, after the arrival of his abnormal fluctuations in the stock market to do a special understanding and research, and thereafter suspended registration system, fusing mechanism aside, strategic and emerging board shut down, until recently, ST Bo Yuan delisting, we have reason to expect a pragmatic market-oriented regulatory revolution. If so, the proportion of direct financing of the promotion is a natural thing.

It may be said of Zhou's misreading, of course, is a misreading of monetary policy, but also on China's economic reality misreading, it is the concept of policy-makers and commitment to reform misreading. It is said that the investment itself was a long practice, if want to do so, not just investors, including regulators, including the market players can be less impetuous.